4 Rules for 401k Rollovers

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What restaurant here with John still in the founder of Rosewood wealth management agent and equipment not too much excited to chat with you today because we talk about the four rules for 401(k) rollovers are to say it is you have to just really enunciating a portion of it for rules for 401(k) rollovers. Lotta fours in their right so number one when you leave the company that you're working with your money should also leave right so this is the basic rule for 401(k) rollovers. Once you've left the company. Your money shouldn't be orphaned. It shouldn't be left behind. Reason being that a common problem people leave their money behind it lawful or all the time you and believe the number of people who come in with 401(k)s from three or four different jobs and I just am still the old account rights of the one the Vanguard account from their big job and I have one in the Fidelity account and their UNC job and they have another one on a TD Ameritrade platform from some other place that they were to not working somewhere else when they have a different 401(k) of all these different platforms are all over the place in their little bit disorganized, which seems really odd to me because I see in past experience wanted to disassociate myself as fast as possible with that previous employer, whether for egregious reasons are not just I moved on to a new chapter in my life. It just seemed logical to take that stuff with me.

So I find it surprising that it's a common problem yeah but I mean it's not like the old employer has your money.

It's right on Fidelity's platform so you know, for a lot of people. It's just that yeah I should probably roll that over eventually, but they just never got around to it right. That's the most common thing so the reason you would generally want to move it, and there are exceptions to this, which I'm guessing we'll talk about later, but didn't general the reason you'd want to take your money with you is because of flexibility and control. Most 401(k) platforms have a very limited menu of investment options for you. It might be 10 or 12, and some it might be 50 or 60 different funds that you can choose from and some of the more diverse platforms, but the bottom line is you still don't have the capability of note taking advantage of the entire investment world when you're limited in your options. So flexibility and control are really much more at your fingertips when you move that money to your own IRA and it's also helpful just for organizational purposes because we have all these other accounts out there and you end up with 567 tax-deferred accounts. It's really hard to organize and be sure that everything is doing what it needs to be doing, but if you start to consolidate and take those three old 401(k)s implement a one account will then it's much easier to watch and be sure it's all doing what it's supposed to be doing right so that's rule number one when you leave the company year money should leave with you. Rule number two contrary to what you might think is not always follow rule number one, it's that there are exceptions to remember one and there could be a number of exceptions, but I'm to give you two specific reasons why you might not want to roll over your 401(k) scenario number one would be if you worked for the state of North Carolina and you had at least five years of service under your belt, prior to the year 1989. Now I realize I realize were talking to a very small sector of the people listening to this right but it's important to illustrate the concept. So if you started working for the state of North Carolina in 1984 or earlier you had those five years of service.

By 1989 and you would be part of the Bailey settlement. You may have heard of Bailey vesting rhyme, but it hurts my say on Bailey vested with my 401(k) what that simply means is that everybody that has that Bailey vesting does not have to pay state income tax on money that they withdraw from their 401(k). If you roll that money to an IRA, all bets are off. Now it's going to be taxed as income both federally and at the state level, just as it would be in any other IRA. So is not necessarily huge benefits, since state taxes aren't a ridiculously high rate now owns around 5% depending on exactly where you fall on the tax table there but that 5% you're not paying estate taxes is certainly worth keeping it in the 401(k).

In most cases.

Now there might be scenarios where you really want to invest in a way that you just can't within the 401(k) and so you would still roll it out and say it's all right that 5% is not that big a deal to me, but it's important understand that that's a scenario where it might make sense to not rollovers. Another example would be, let's say you left the company at age 56 and you're not sure what you're going to be doing workwise moving forward with you will let money to an IRA.

You can't touch it until you're 59 1/2.

Otherwise, you'll have to pay a penalty. The federal government to take an early withdrawal from that IRA.

However, if you leave the money in the 401(k) as long as you're at least 55 you can take the money out without penalty.

So that's one of these weird little rules where if you separate from the company between 55 and 59 1/2.

It could very well make sense for you to keep money there in the 401(k) so just a couple of specific exceptions to the rule of you should always take your money with you.

If you live in a state employee for really really long time, or at least had this five years of service before 1989, or you might need to tap into those funds. There should be the alarm bells a coughing or had one on rollover might not be the right case for right number three if possible. Utilizing a trustee to trustee transfer is going to be best so sometimes your 401(k) won't allow this. But most of the time they will, which is simply saying let's pretend like you have a 401(k) and it's at phallic with a custodian that's where you log and that's where you can look at all your accounts. Let's say you're rolling into an IRA that is at fidelity in an ideal world phallic would make the check directly to fidelity for benefit of Walter Strobel's will examine check Fidelity investments SVO water startled that check then goes to fidelity.

They deposited you never actually had possession of the money. If that's the case it's much easier and cleaner and you don't have to worry about any deadlines or anything like that just goes from one trustee to the other. No tax implications at all. If, and sometimes your 401(k) provider will only do it this way. Sometimes they'll only make the check to you not to fidelity. They'll make it to water startled and you suddenly have $273,000 that you have to go deposit in the bank. I'll take it and then you have to turn around and write a check for $273,000 to fidelity as long as you do that and it gets all done and processed within 60 days. You have no tax implications. The problem of course is if something happens and that whole transaction doesn't happen in 60 days from the time you deposit the check to the time the money gets taken to the new account. Now it's suddenly considered an IRA or 401(k) withdrawal so now you and be taxed, and assuming you're under 59 1/2, you're going to be penalized on that money. So usually the 60 day window is a gracious plenty to make that happen, but if you can just do trustee to trustee, it makes a lot easier and you don't have to worry about. Can someone use that opportunity when you're rolling over and that's an area where they write you the check in and you write the check to you know in the next step to the new IRA holder. Can you take the opportunity to borrow little money from the 401(k) or say are I will $273,000 on the keep 3000 of this and take a trip to the beach so you would then be taxed and penalized on that 3000 but your keeping certification is $4000 a set of three is pretty much yes you could do that. So just keep that in mind, very good. Last but not least, rule number four rollover with a purpose is not like a dog instruction, but that kind of role but you want your dog also to rollover with a purpose and another that if there well-trained.

So basically the point here is you don't want to just roll to an IRA and then plop it in there and say okay now what right you want to have a strategy for what you going to do with that money. Once you roll it to an IRA. So I've seen a lot of people roll money from a 401(k) and if they have the opportunity to go trustee to trustee and they don't even have to cash out. They can just move it over in kind like let's say your 401(k) is at fidelity and you're rolling into a fidelity IRA.

You might not even have to sell whatever mutual funds they have in there you can just move it over as is to the IRA and if that's the case I've actually seen people do that roll the IRA images leave in the same funds they had it in the 401(k) weld that rollover did you know good you're not taking advantage of that flexibility and control that we just talked about a few moments earlier. I've seen people know liquidate what they have rolled out parking in a money market in the IRA until they decide what they want to do with it, and then two years goes by and instilled in sitting in that money market whole time because you never got around to deciding right will now that I'm on this new platform outline best so before the money gets in there. Or, as the money is coming into the IRA you want to be mapping out your strategy.

What am I doing with this money is money that I need for income in the relatively near future, or is money that I'm going to invest in leave alone for a couple decades because I don't need it for a while. That's going to dictate the investment strategy that something you want to decide prior to the money sitting there collecting dust for 18 months, something of the four rules for 401(k) rollovers when you leave the company or money should leave with you.

There are exceptions to rule number one, that's number two and number 31 possible through a trustee to trustee transfer. That's gonna be usually the best option and cleanest in number four rollover with a purpose. The boy might have to get a biscuit negative.

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